No big bang but budget goes for growth

KARACHI: Economists on Friday gave the federal budget 2015/16 thumbs up, saying the economic and fiscal targets set for the upcoming fiscal year are somehow realistic, but cast concerns over the government’s capability to meet such targets.
“This has been another exciting budget presented by the Federal Finance Minister Ishaq Dar,” said an economist.
The economic team of the incumbent PML-N government will try to achieve a balanced economic growth of 5.5 percent for the next fiscal year, compared with 4.24 percent during 2014/15.
And, under the medium-term macroeconomic outlook, the growth rate is fixed at seven percent by 2017/18 fiscal year.
“If the government wants the economy to grow faster, it will have to move very fast to deliver on the proposed measures and reforms, which may enhance exports, industrial growth, investment and employment,” the economist said.
“Otherwise, the government could not achieve whatever it has said…all targets – from growth to revenues – were missed in FY15, which Dar had already accepted.”
Sakib Sherani, chief executive officer at macroeconomic insights, said the budget has some very positive elements.
“However, it places tax burden on the documented firms,” Sherani said.
An economist said, “The budget is not as growth-oriented as we were expecting”.
He said the share of energy, water, and social sectors in the public sector development program’s spending decreased in the next fiscal year.
Ex-governor State Bank of Pakistan Salim Raza in order to achieve the desire growth the government should focus on picking up investment momentum.
“It cannot only be achieved through softening interest rates. There is need to increase the investment to GDP ratio and set up financial financing institutions and strengthen long-term debt capital market,” Raza said. “Then the target will become visible.”
The investment-to-GDP ratio, which was registered at 12.4 percent in 2012-13, improved to 13.4 percent in 2013-14, and is provisionally estimated at 13.5 percent for the outgoing fiscal year.
Government projects this ratio at 16.5 percent for 2015-16.
Raza said there were few positive announcements in the budget, such as the maintaining of corporate tax rate on banks’ earnings at 35 percent. Similarly, export concessions will also boost the growth in manufacturing sector, he added.
He said there is nothing new in tax and spending. The proposed 4.3 percent fiscal deficit target will be achieved through a combination of improved tax collection and expenditure containment.
“It seems difficult for the government to achieve fiscal deficit target unless it put reforms on fast track to control fiscal deficit because continued growth in spending in loss making state-owned firms may be unsustainable in the long run,” he added.